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What do new tax proposals mean?

Proposals by the NRM advisory committee on the budget to increase taxes on several key commodities, among them fuel and sugar, is a short-term fix whose impact, tax experts and economic analysts say, will be devastating on the economy.

Sunday March 16 2014

A man fills paraffin in a locally made lamp. If the new tax proposals are confirmed, many will need more money to buy paraffin. PHOTO BY ABUBAKER LUBOWA

In Summary

Consumer plight. According to experts, the new tax proposals will have a heavy impact on consumers because most companies’ operation costs will shoot up, affecting profits and making business difficult to run.

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By ISMAIL MUSA LADU

Kampala.

Proposals by the NRM advisory committee on the budget to increase taxes on several key commodities, among them fuel and sugar, is a short-term fix whose impact, tax experts and economic analysts say, will be devastating on the economy.This means that in the next one to three years, government could get the money it wants in form of taxes to manage its affairs (budget), but thereafter, the limited sources of revenue will be closing down not just because of fatigue, but due to rising cost of doing business.

“Increase on the prices of fuel affects all other (economic) sectors,” the KPMG tax expert, Mr Peter Kyambadde, told Sunday Monitor in an interview on Friday. “This is a short-term gain (tax proposals on fuel) which in the long run will increase expenses of all other commodities. It will also see the operation costs shoot up, affecting profits and productivity, making business operations difficult to run,” he added.

For an average Ugandan, these proposals, especially the Shs300 to be levied on petrol, paraffin and diesel will not just have implication on their pockets but will see most of them, especially those employed, laid off as businesses will either seek to cut costs or close down operations. Although the tax proposals are on areas that are easy to collect, the Private Sector Foundation policy analyst, Mr Moses Ogwal, said any proposal that constrains businesses from thriving is bad.

And any proposal that will support business to produce more and employ more will be supported by the private sector. Uganda Manufactures Association Executive Director Sebaggala Kigozi, whose members will be one of the segments to be affected by the new tax proposals should they be approved, said they will counter the proposals this week when they present their side of the story to government.

Weighing on the matter, the Secretary to the Treasury, Mr Keith Muhakanizi, told the Sunday Monitor that the proposals are not for the ruling NRM party, but for the government and that it is up to Cabinet to endorse or review the proposals and make appropriate adjustments.

“Ultimately Cabinet will decide on the matter. But there is nothing wrong for such proposals to be discussed because we believe in transparency,” Mr Muhakanizi said. If the proposals which are contained in a report by the presidential advisory committee due for Cabinet discussion early next week get endorsed, the consumers will have to dig deeper into their pockets to consume, for example, processed milk, locally produced chocolate, sweets, chewing gum, computers, car fuel, paraffin and wigs among others.That is something consumers may not be prepared to take. According to the Chief Executive Officer of Uganda Consumer Action Network, Mr Dan Marlon Nabutsabi, the government budget must not only be needs based but also sensitive to poor people.

“It defeats all rationale when policy makers note with concern that the number of persons consuming processed milk and milk products is very small, but again institute a tax thereon. Let them impose tax on luxurious goods like wigs but leave those that impact on the most vulnerable consumers, like milk and paraffin,” said Mr Nabutsabi.

Ms Nelly Busingye Mugisha, the programme officer for tax justice/financing for development at the Southern and Eastern African Trade, Information and Negotiations Institute, said even before the new proposals are discussed, there must be accountability for the previous taxes, no matter how little it was.

“It makes no sense to go to the hospital only to find there are no drugs yet the government has been collecting revenue. People want to see something developmental, no matter how small, and in return they will comply,” she said.